By Masibongwe Sihlahla
In today’s economic landscape, the role of Small, Medium, and Micro Enterprises (SMMEs) has become imperative in driving growth, innovation, and job creation.
These businesses however in our experience over many years in Mzansi often face various challenges, including chiefly limited access to funding and financial resources.
At the start of our democracy after 300 years of colonial settler occupation, the banking sector was controlled by an exclusive club and thus access to funds by black entrepreneurs was virtually non-existent for all practical reasons.
It was under the directive of the ANC democratically elected government that it became essential for banks to recognise the significance of SMMEs, and actively contribute to their empowerment.
The importance of SMMEs to the economy in South Africa cannot be over-emphasised, as we know that SMMEs play a vital role in the economy by contributing significantly to employment generation, poverty alleviation, and economic development.
They are often referred to as the backbone of many economies worldwide, especially in developing countries. These businesses are innovative, agile, and have the potential to drive economic growth at grassroots-level.
SMMEs provide employment opportunities to a significant portion of the population, particularly in rural areas and townships. The ANC government has created the legislative framework for SMMEs to hire local residents and supporting entrepreneurship,
SMMEs help reduce unemployment rates and alleviate poverty, not in an academic manner but directly.
Research over the years indicate that SMMEs are important drivers of economic growth in South Africa and that these businesses stimulate economic activity, foster innovation, and contribute to the country's gross domestic product (GDP). Their agility, creativity, and ability to fill niche markets make them essential for a dynamic and diverse economy taking us into the 21st Century.
SMMEs also play a direct role in poverty alleviation by providing income-generating opportunities to individuals from disadvantaged communities impoverished by apartheid.
Research demonstrates that many entrepreneurs who started small businesses managed to improve their livelihoods and create a sustainable source of income for themselves and their families.
The Department of Rural Development plays an important role in laying down infrastructure and formulating policy but they realise that SMMEs are instrumental in promoting rural development and economic diversification which supersede any attempt by the department.
By establishing businesses in rural areas, SMME owners have played a great role in stimulating local economies, creating employment opportunities, and reducing migration to urban centres.
The racist apartheid regime under PW Botha recognised that decentralisation of economic activity is essential for balanced regional development, and the ANC has developed that into a more comprehensive policy framework of which we can see the rewards starting to percolate through. Under the democratic government all local municipalities also have a local economic development director to enhance implementation of national policy.
SMMEs are by nature intrinsically hubs of innovation and economic competition in the South African economy, especially at local government-level .
These businesses often introduce new products, services, and business models that drive competitiveness and improve consumer choice and thus prices. SMMEs are also able to adapt quickly to market trends and customer preferences which in the end enhances overall economic dynamism.
It was through SMMEs that the government was able to push through transformation and inclusivity in our economy.
By having provided opportunities for previously disadvantaged individuals to enter the business sector, SMMEs have contributed to a more equitable and diverse economy.
Through SMMEs black entrepreneurs have been empowered to participate in economic activities and share in the country’s wealth which used to be for whites only.
Sadly despite their importance, SMMEs still encounter several obstacles that hinder their growth and sustainability of which the primary challenge is access to finance.
Many SMMEs struggle to secure loans and credit facilities from traditional financial institutions due to stringent lending criteria, the lack of collateral, and perceived risk factors still tainted by racist notions.
This limiting factors stymie access to funding and thus restrict SMME’s in their ability to expand operations, invest in technology, and hire more employees.
Banks can and do play a critical role in supporting SMMEs and fostering their growth and development. By providing tailored financial products and services, banks can help address the specific needs of SMMEs and enable them to thrive in a competitive business environment.
Research done by scholars in South Africa depicts just some key ways in which banks can empower SMMEs:
Banks can design specialised loan products with flexible terms and lower interest rates to cater to the financial requirements of black-owned SMMEs. By easing the borrowing process and offering financial education, banks can empower SMMEs to make informed decisions about their businesses.
Banks should collaborate with the government and industry experts and provide training programmes, workshops, and mentorship opportunities to enhance the skills and capabilities of black SMME owners.
This capacity-building support can help SMMEs improve their operations, increase efficiency, and achieve long-term sustainability which is a mainstay of any thriving economy.
In the era of digitisation, banks can play a pivotal role in facilitating the digital transformation of SMMEs.
By offering online banking services, digital payment solutions, and access to e-commerce platforms, banks can help SMMEs leverage technology to reach a broader customer base and streamline their operations, making operating costs cheaper and more affordable for the previously disadvantaged.
Empowering SMMEs requires a collaborative effort from various stakeholders, government agencies, industry associations, and non-profit organisations including and most importantly banks. By working together, these stakeholders can create an enabling environment or as the experts say nowadays a conducive ecosystem that supports the growth and success of SMMEs.
Collaboration is essential as history proves it can lead to the development of innovative solutions, policy reforms, and financial mechanisms that benefit SMMEs and drive inclusive economic growth.
Looking ahead, banks must recognise the importance of SMMEs in driving economic development and actively support their empowerment which in turn benefit the banks in the end. By offering tailored financial products for previously disadvantaged groups, capacity-building support, and digital solutions, banks can help SMMEs overcome challenges, unlock their potential, and contribute to sustainable economic growth.
Empowering SMMEs is not only beneficial for the businesses themselves but also for the overall economy and society at large. It is time for banks to “come to the party” and play a significant role in the success story of SMMEs.
The days when banks were thought by black business owners to be only for the benefit of whites need to be dispelled, but in that effort the ball is in the court of the banks.
Masibongwe Sihlahla is an independent writer and social activist.
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